Another Delay in Deciding $15 Billion in Budget Cuts

ATHENS – After vowing during the campaign before the June 17 election to hold the line on more austerity measures demanded by international lenders in return for bailouts, Greek Prime Minister Antonis Samaras’ uneasy coalition government has reportedly agreed on most of a plan to cut the state budget by $15 billion over the next two years, with likely targets again including pensions he had promised to exempt.
A meeting with his coalition partners, PASOK Socialist leader Evangelos Venizelos and Democratic Left leader Fotis Kouvelis, was supposed to yield a list of the cuts, but broke down late on July 26 when the they could not settle on where to cut a remaining 1.5 billion euros, or $1.84 billion, although the government promised there would no more pay cuts for public workers. The trio will meet again on July 30 to see if they can make the final trim in the budget.
About 5 billion euros ($6.15 billion) of the cuts will come from from pensions and welfare benefits while tax evaders owing the country some $70 billion have largely gone unpunished and lost revenues not recouped. The remaining cuts will be spread out across various ministries, including a big chunk from the health ministry.
The details of the plan were not revealed but came after days of intense negotiations and disagreements between government ministers eager to save their own budgets as much as possible. Samaras, whose New Democracy Conservatives are leading the government, is desperately trying to convince the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that he is serious about trying to right the economy and he will meet with officials from the lenders on July 27.
Samaras has already backtracked from another campaign promise to try to renegotiate some of the terms of a second bailout of $173 billion. Greece is surviving on a first series of $152 billion in rescue loans that came with conditions of deep pay cuts, big tax hikes and slashed pensions that Samaras initially opposed, then supported, then opposed, then supported.
Finance Minister Yiannis Stournaras, who said Greece has to adhere to the Troika demands, said the government nonetheless hopes to gain more time to impose more reforms and Venizelos said he hoped the timetable could be pushed back to 2016, media reports said. Kouvelis stressed that it would be difficult to make all the cuts and insisted, despite media reports to the contrary, that there would not be any more pay cuts. “Society cannot bleed anymore,” he said. “We are fighting to find solutions and make fair interventions. We are seeking a renegotiation.”
The Premier is reportedly trying to show good will to keep Greece from being forced out of the Eurozone of the 17 countries using the euro as a currency. The $15 billion in budget savings will be submitted to the Troika, which had inspectors in Athens, for final approval. Greece has essentially ceded its sovereignty to the lenders after being locked out of the private markets when a previous shaky hybrid New Democracy-PASOK government imposed 74 percent losses on investors.
The chances of Greece leaving the Eurozone in the next 12-18 months have risen to about 90 percent and Athens is most likely to quit the single currency within the next two to three quarters, U.S. bank Citi said in a report. In more bad news for Greece, ECB data showed deposits at Greek banks hit their lowest level in six years in June as savers worried about the country exiting the Eurozone pulled their money out.
Eurozone partners want to keep Greece in the economic bloc, fearful that a default could topple the entity, but some countries are reluctant to keep pouring money into Greece, especially with new reports that a third bailout could be needed because the austerity measures have worsened a deep recession and are driving down tax revenues.
Greece is unable to pay a 3.5 billion euros ($4.3 billion) loan installment in August and the government is seeking a bridge loan to pay the loan, getting itself deeper into debt. Under the bailout deals, Greece has to set aside all tax revenues needed to pay investors first and only then can use leftover funds to operate the government. Without the Troika loans, Greece won’t be able to pay its workers and pensioners and the Troikas said unless the government goes ahead with reforms that it could withhold a 31.5 billion euros ($38.8) billion installment in September, which would bankrupt the country.
Samaras faces a dilemma: trying to appease Greeks weary of austerity and who brought down a previous PASOK government of then Prime Minister George Papandreou, after relentless protests, strikes and riots. Labor unions are already readying more strikes as Samaras said his government would cut lump sums due pensioners by more than 22 percent. The Troika is due to wrap up its visit in early August but is not expected to finalize its assessment of Greece’s progress until September.
(Sources: Kathinerimi, AP, Reuters, ProtoThema)